The New Mexico State Investment Council (NMSIC) has voted to commit up to $125 million to a new fund being raised by US timberland investment management organisation Resource Management Services (RMS), at its board meeting on Tuesday.
The NMSIC manages the State of New Mexico’s $20 billion permanent endowment. The investment in the RMS Evergreen US Forestland Fund brings NMSIC’s timberland commitments to $375 million, roughly 20 percent of the endowment’s allocation to its real assets portfolio, which also includes $325 million in agri commitments and $940 million in commitments to energy and infrastructure investments.
The open-ended fund has already made a seed investment in Red Mountain Timber, a 2.1 million acre timber portfolio spread across eight US states. It was launched in July last year with no specified target, according to SEC filings. It has a long-term net return target in the high single digits, with an annual net income cash yield on net asset value in the mid-single digits, according to an investment prospectus submitted to NMSIC.
Returns will come through sales to sawmills and pulpmills, with the potential of additional revenue from packaging and energy production wood fibre sales, as well as carbon sequestration and mitigation bank credits.
Townsend Group, which advised the committee on the investment, said that the timber market could be expected to do well on the strength of a resurgent US housing market. They also cited the open-ended structure of the fund and RMS’ track record in their recommendations.
“We’re bullish on the return in US housing,” RMS vice-president of investments, Tony Cascio told Agri Investor: “There’s a little bit of extra supply in the timber market remaining as a result of the decrease in the housing market in recent years. But we think prices [of lumber and timberland] are going to increase as the market continues to rebound.”
RMS chief executive Craig Blair told members of the investment council that the open-ended fund structure “allows us to make management decisions not based on a calendar date.”
The monthly volume of new home sales in the US fell by nearly three-quarters between 2005 and 2011 according to the St Louis Federal Reserve Bank. The producer price index for lumber and wood products continued to rise until 2007, before dropping in value by more than 13 percent from 2007 to 2009.However, previous troughs in wood and lumber prices in 2002, 1996 and 1986 all came during periods of growth in the US housing market, suggesting that housing is not the sole driver of US timber market health. New home sales in the US surpassed 500,000 per month in 2015 for the first time since 2007.
The Evergreen Fund plans to increase its acreage through acquisition of timberland plantations diversified by age-class, species and regional sub-markets within the US south, representatives from RMS said at the NMSIC board meeting.
Cascio declined to comment on the further financial specifics of the RMS Evergreen Fund, citing SEC regulations against marketing private funds.
RMS was formed in 1950 and has its headquarters in Birmingham, Alabama. It has a portfolio of $4.3 billion in timberland under management in the US, Australia, New Zealand, China and Brazil. It has previously raised at least five US funds and two international funds.